Rain applies for the charter the community banks are suing over

Rain, a New York company whose partners run stablecoin card, wallet and payments programmes, said on Monday that it had applied to the Office of the Comptroller of the Currency to set up Rain National Trust Bank. According to its announcement, the bank would have three lines of business: custody of digital assets and dollars, management of reserves for stablecoin issuers permitted under the GENIUS Act, and issuing and redeeming dollar stablecoins as issuer of record. Modern Treasury, a San Francisco payments company, applied for a trust charter the same day, Banking Dive reported. Unlike Rain, it does not plan to issue a stablecoin of its own.

Banking Dive says these were the first trust charter applications sent to the OCC since the Independent Community Bankers of America sued the agency on Friday 2 October. The trade group filed in federal court in Washington against the OCC and the Comptroller, Jonathan Gould. It asks the court to throw out the agency's 2 March chartering rule and Interpretive Letter 1176, the 2021 letter that rule builds on, and to stop the OCC using either to approve more charters. By the complaint's count, as reported by Gizmodo, the OCC has approved or conditionally approved 21 trust banks under the Trump administration, at least 13 of them crypto companies.

The case turns on one distinction. "The OCC's decision to allow companies to obtain national trust bank charters to conduct substantial non-fiduciary activities exceeds the authority Congress granted the agency," the ICBA's chief executive, Rebeca Romero Rainey, said in the statement announcing the suit, quoted by PYMNTS. "Congress did not create the national trust charter as a side door into the banking system for crypto firms seeking the credibility of a federal bank charter without the Community Reinvestment Act obligations, consolidated supervision, capital and liquidity standards, and FDIC insurance that apply to insured depository institutions."

The OCC's position is that nothing new has happened. When it issued the March rule, it said the rule clarified "the longstanding authority of national banks limited to the operations of trust companies and activities related thereto to engage in non-fiduciary activities in addition to their fiduciary activities." It added: "The final rule would neither expand nor contract the OCC's authority to charter a national bank." A spokesperson told PYMNTS the agency does not comment on litigation.

Read against that dispute, Rain's announcement is built around the word "fiduciary". "The institutions building on Rain want the assets behind their programs held by a fiduciary that answers to a federal regulator," said Farooq Malik, its chief executive and co-founder. The proposed bank, he said, "will be a separate subsidiary that holds client assets in custody, as a fiduciary and subject to OCC examination." The release lists what the bank would not do. It would be uninsured, take no deposits, make no commercial loans and offer no consumer accounts. Client assets would be "custody assets held for identified owners, not liabilities of the bank", and the reserves behind any stablecoin it issued "will not be pledged, lent, or reused". The release calls the custody business fiduciary. It does not use the word for the other two lines, managing other issuers' reserves and issuing and redeeming stablecoins.

Rain has also chosen a chief executive who has been through the chartering process before. Brandon Soto, the proposed head, was chief financial officer of Square Financial Services, Block's Utah industrial bank, where he helped prepare the charter application the FDIC and Utah's regulator approved. "A trust bank's first job is simple. Know what you hold, know who you hold it for, and keep it safe," he said. "I have sat across from bank examiners for twenty years, and the best answer you can give is, 'Here's the reconciliation.'"

The banks' other complaint is about risk if one of these firms fails. The complaint says, according to Gizmodo, that a national trust charter would let Protego Holdings, the crypto firm whose conditional approval it asks the court to vacate, operate nationwide and preempt a range of state consumer-protection laws without FDIC insurance, Community Reinvestment Act duties or Basel-style capital and liquidity rules. It also says the OCC has not run a receivership of an uninsured bank in nearly 100 years. The Bank Policy Institute, which represents large banks, took a similar line in a statement on Friday, quoted by PYMNTS. "Companies should not receive trust charters unless they plan to limit their operations to genuine trust activities," said Paige Pidano Paridon, a co-head of regulatory affairs. "If they want to engage in traditional banking activities, they should seek full-service banking charters." The Crypto Council for Innovation called the suit an attempt to stifle innovation, Cointelegraph reported.

The stakes are large. Dollar stablecoins in circulation came to about $312.7bn on Tuesday, according to DefiLlama's public data, against about $301.1bn a year earlier, a rise of roughly 4 per cent by our calculation. Rain's bank would hold reserves for other issuers as well as issuing its own coins. Gould has argued for keeping the charter route open. "New entrants into the federal banking sector are good for consumers, the banking industry and the economy," he said when the OCC conditionally approved a batch of charters in December.

Rain's application now goes through OCC review, including a public comment period. The ICBA has asked the court for an order that would stop the agency granting it, or anyone else, a charter under the rule being challenged. Rain has set out what its bank would and would not do in detail. The court will decide which side of the line those plans fall on.